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Microsoft and Tesla resist share sell-off

While share prices collapse, some companies remain immune to the sell-off.

Article updated: 5 December 2018 10:00am Author: Michael Baxter

It is not difficult to understand why the FTSE 100 is down — it has lost 12 per cent since May — the word that theoretically explains it begins with a B followed by an R. It ends with IT and has EX in the middle. There I managed to avoid saying Brexit.

But then why is the Dow Jones down by seven per cent since October. Well that’s all about international trade and fears over a trade war. Then yesterday, President Trump described himself as “Tariff man” and the index lost 700 points in just one day. For what it’s worth, it surprises me that the index has done as well as it has, I believe the markets have underestimated the damage that a trade war can do — I can only conclude that they think Trump is bluffing.

Then again, the DAX index which follows the leading companies listed in Germany, is down 16 per cent since the beginning of the year. But then German GDP contracted in the last quarter.

It seems different stock markets are down for different reasons.

You can step back and say, ‘but such falls were inevitable, stocks had risen way too high, the aroma of bubbles was everywhere.

Except, for several years, analysts have been saying that European stocks look cheap — if so, that explains the falls in the DAX.

For that matter the other ‘value’ stock market, the Nikkei 225, is down 10 per cent or so since January.

It seems that in 2018, the answer was sell, whatever the question.

Techs

As for the techs: Apple is down 22 per cent since the beginning of October, Amazon has lost 14 per cent and Alphabet is off by close to a third.

As for Facebook, it is down by nearly 40 per cent.

But when we look at the rationale for the falls, it is quite different.

For Alphabet and Facebook, I think the drops are about data privacy. These two companies make money from data, and to an extent, their business models are not consistent with the emerging privacy framework— not just GDPR, California, Canada, Japan and Brazil are among the regions advancing GDPR style regulation. Facebook has the additional problem that kids and students are migrating from it — the platform is not cool and is increasingly seen as social media for parents and grandparents.

As for Amazon, well, look at its PE ratio. Its shares seem to have been caught up in a hype wave. And finally, Apple’s falls are about fears that the iPhone business has reached peak.

Don’t get me wrong, these are still good companies — with the possible exception of Facebook, which may have deeper problems. If I was allowed to be so bold, I would be tempted to say that Apple’s, Amazon’s and Alphabet’s best days are still to come. Alphabet remains the leading player in AI, Apple is between paradigm shifts — yes I hate the word paradigm too, it is just that this is one of those few occasions when the word is merited. Augmented reality will be as transformative as the rise of smart phones was — and Apple sits pretty in this space.

Microsoft and Tesla

And yet, shares in Microsoft are merely down by around five per cent since the October peak — at one point, a couple of days ago, and for a short while, Microsoft was the biggest company in the world by market cap. Tesla is down by a similar amount.

Indeed Tesla shares have surged by more than 40 per cent since early October.

And returning to Microsoft, I think you can explain its relatively modest falls as being entirely down to negative sentiment against techs.

So why has this dynamic duo done so well?

Well, at the risk of being unable to squeeze my head through the door, I would say the good fortunes of both companies were predicted here.

Tesla has expertise in two crucial areas which its rivals lack — AI and lithium ion batteries. According to critics Tesla’s production targets were impossible. So how did it meet them? Answer: electric cars are less complex to manufacture — once you have got the batteries right.

As for Microsoft— I have been saying this for a while, we are seeing a temporary shift (to last a few years) away from the supremacy of consumer tech to B2B tech, as technologies such as AI and robotics process automation transform productivity.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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